Assessment of a Price Index for Hospital Outpatient Department Services Using Commercial Claims Data in Massachusetts

This cross-sectional study assesses a market basket price index to evaluate hospital outpatient department price levels and growth.


Included services
Encounters were defined as services occurring for the same person, same date of service, and same procedure code to capture the potential for both facility and professional claims billed on the same day for the same service based on the setting. As such, procedure prices and aggregate allowed amounts included any relevant facility and professional spending.
For a CPT code to be a candidate code for inclusion in the price index it had to be present with sufficient volume (at least 20 encounters) at hospital outpatient departments of at least 50 Massachusetts hospitals in 2018. 67 unique procedure codes met the above criteria. CPT codes were then ranked in descending order based on aggregate statewide HOPD spending (in 2018) and then selected the top 50 procedure codes. The set of 50 codes was chosen to include a range of typical HOPD services (e.g., visits, procedures, lab services, etc.).

Service quantities
Service quantities in the index were defined as the statewide utilization rate of each procedure code per 100 commercially insured members observed in the Massachusetts APCD in 2018. Thus, the final market basket represents expected spending per 100 commercially insured members in each year for the services in the index. The quantities are fixed, for all entities and all years, at observed levels in 2018. In accordance with a Laspeyres index, the quantities do not vary by entity, and as a result, the index values represent the cost for an identical set of services (both in type and quantity) that were rendered at hospital A versus hospital B (or system A versus system B).

Service prices
We applied an asymmetric price trimming strategy to emulate the right-skewness that is typical in cost data to reflect the price variation for commercial services. Encounters with allowed amounts that were either less 20% of the median allowed amount or greater than ten times the median allowed amount for the procedure code were excluded from analysis. After making these exclusions, we computed average service prices by taking the mean of the allowed amounts for each service for the given unit in question. We considered other approaches (e.g., excluding the top and bottom 1% of prices for each procedure code) and found that results were consistent.

Hospital Index Computation
The price index was computed for each acute care hospital in Massachusetts for each year from 2018 to 2020. Hospitals were identified in the claims data by linking to facility national provider identification (NPI) numbers.
The hospital price index is represented below where indexes acute care hospitals and indexes the 50 procedure codes selected for inclusion in the HOPD index ( 1, 2, 3, … 50 . is the hospital-specific ("j-th") average price for procedure code , and represents the statewide utilization rate for procedure code . ∑ signifies that we sum up the product of the hospitalspecific average price and the statewide utilization rate for each of the 50 index services separately by hospital to calculate the total value of the price index for each hospital: * © 2023 James HO et al. JAMA Health Forum.

Computing the Price Index for Other Units of Analysis
Hospital system: Hospital systems were defined as a group of hospitals that are affiliated. We rely on public information from the Center for Health Information and Analysis to describe the organization of acute care hospitals into hospital systems in Massachusetts during our study period. 1 To compute the index at the level of the hospital system, we adapt the hospital-specific approach, by calculating the mean service price at the level of the hospital system (rather than the individual hospital). The procedure-specific statewide utilization rates are still employed, and the same set of services (as in the hospital index) are used across all hospital systems.
The formula for the calculation of the price index is represented below where indexes hospital systems, indexes the 50 procedure codes selected for inclusion in the HOPD index. represents the hospital system-specific ("c-th") average price for procedure code , and represents the statewide utilization rate for procedure code . ∑ signifies that we sum up the product of the hospital system-specific average price and the statewide utilization rate for each of the 50 index services separately by hospital system to calculate the total value of the price index for each hospital system: * Statewide: To compute the index at the level of a state, the calculation is a sum of the average statewide price for each procedure code multiplied by the statewide utilization rate for each procedure code . ∑ signifies that we sum up the product of the statewide average price and the statewide utilization rate for each of the 50 index services to calculate the total value of the price index for the state: *

Methods for Imputation of Incomplete Index Components
In 2018, 26 hospitals had sufficient volume (at least 20 encounters) for all 50 services in the HOPD index. The remaining hospitals had at least one missing service with insufficient volume. We examined the following two imputation methods to impute average hospital-specific prices in such cases and present primary results using Method 1.

Method 1: Imputation using price ratios for non-missing services at a given hospital
This method involved the following steps: 1) For each non-missing service, we calculated the ratio of the hospital's average procedure price and the statewide average price. For example, a hospital with an average price of procedure code X that is 10 percent higher than the statewide average would have a value of 1.1 for this ratio. 2) Then we calculated the simple average of the ratios for all non-missing services. For example, if a hospital had two missing codes and ratios of 1.1 and 1.0 for the two codes, this average of ratios would be 1.05.
3) Finally, we multiplied the statewide average price for the missing service by the ratio in step 2 to estimate a hospital-specific predicted price for a missing service. Effectively, if the hospital had provided a service, what we expect that price would have been, assuming pricing consistent with all other services.
Method 2: Imputation using statewide average prices This imputation method directly substitutes the statewide average price for a procedure code in which a hospital does not have sufficient volume of that code to calculate its own average price.
This method is more conservative and biases a hospital's price toward the statewide average (i.e., high-priced hospitals will appear somewhat lower-priced than they likely would be and viceversa) but is computationally simple and reduces potential volatility in the index where specific circumstances may explain why hospitals might have insufficient volume of a given procedure.

Comparison of Imputation Methods
We found that while these ratios vary somewhat by procedure for a given hospital, they tend to be relatively consistent. It is unusual for a hospital to have some prices far above the statewide mean and some far below. For example, it is more typical for a hospital with average prices 20% below the statewide mean to have individual procedure prices that vary between roughly 10% to 30% below the statewide mean.
The following exhibit illustrates the difference between HOPD index in 2019 estimated using the two methods described above, showing a selection of hospitals with at least $100 difference in the price indices.
© 2023 James HO et al. JAMA Health Forum.

Exhibit 1: Comparison of HOPD index levels with different imputation methods, 2019
As noted above, higher-priced hospitals have a higher index value under Method 1 and lowerpriced hospitals have a lower index value, whereas in Method 2, index values are compressed towards the statewide average, thus masking true price variation for non-missing services.

Complete Case Analysis for Hospitals with Non-Missing Services
Twenty hospitals have complete information for all index services (no missing index services due to insufficient volume), and do not require imputation for the calculation of the price index. Using this subset of hospitals, we performed a sensitivity analysis to evaluate varying sizes of the basket where we restrict to the top 10, 20, 30...etc. services in the basket based on statewide aggregate spending. We find high correlations across all permutations evaluated in terms of the basket size, and therefore find that the index is robust to the number of services included in it (Exhibit 2).

Assessing Validity of Empirically Calculated Average Prices
Since 2021, CMS has required hospitals to publish price data for "shoppable" services commonly provided by the hospital. We compared reported data from four Massachusetts hospitals and for four major payers in each hospital (Blue Cross Blue Shield, Tufts Health Plan, Harvard Pilgrim Health Care, and Allways) to validate the facility prices we observed in the MA APCD that are inputs in the HOPD index. In a comparison of hospital-reported 2022 facility prices (the only year available at the time of study) and the median 2020 MA APCD facility prices we found that they were generally concordant (Exhibit 3)

Exhibit 3. Comparison of HOPD Index Computed Using 2022 Hospital Price Transparency Data and 2020 MA APCD Prices
The numerator for this measure is the index value computed for the selected hospitals using 2022 hospital price transparency data (facility prices only), while the denominator is the index value computed using 2020 MA APCD facility prices only. 100% indicates that the index values are consistent. A value greater than 100% indicates the index calculated using the 2022 price transparency data exceeds the index calculated using the 2020 MA APCD. We might expect to see this across some hospitals where contracting changes occurred between 2020 and 2022 that increase prices over time, but the index values remain largely consistent.